Futures speculation blamed for poor arrivals at mandis; may lead to less sowing next season.

A steep rise in the price of mustard seed, due to “heavy speculation” in the futures market, has led to oilseed crushing units reducing their operating capacity from an average of 50 per cent last year to 40 per cent. Squeezed between higher mustard seed prices and lower oil prices, the mills are currently abstaining from active procurement of the raw material and its processing.

The Central Organisation for Oil Industry and Trade, the apex trade body, estimated the country’s mustard seed output at 6.4 million tonnes (mt) in 2009-10 (October-September) as against 6.7 mt a year earlier. Leading traders, however, estimate output at 6-6.2 mt this year.

It is farmers and aggregators, says the industry, who have been unwilling to offload their stocks to mills in anticipation of higher future prices. For related reasons, arrivals in state mandis have been poor, though the peak season is currently on. Trade sources say total daily arrivals are 300,000-350,000 bags (a bag has 85 kg) in state mandis, as against 6,00,000 bags a day at the same time last year. Rajasthan, the largest mustard seed producer, is witnessing arrivals of about 2,50,000 bags a day as against 3,50,000 bags at the same time last year.

The result has been a surge in seed prices and an alteration in the economics of crushing. At an average 40 per cent of oil content in seed, about 2.5 tonnes of mustard seed is required to produce a tonne of oil. Therefore, at a price of Rs 28-29 per kg of seed, the cost of mustard oil production is around Rs 73 a kg. With a variable conversion cost of Rs 2-2.5 per kg, the final cost of production rises to over Rs 75 a kg, against the current price of mustard ‘kachi ghani’ of Rs 55-58 per kg (at stockists).

According to Deviprasad Khandelia, managing director, Khandelia Oil and General Mills, “Mills are waiting for prices of mustard seed to decline to at least Rs 450-460 per 20 kg to make crushing viable.”

The price for mustard seed delivery in July rose sharply on the National Commodity and Derivatives Exchange on Tuesday to Rs 528.65 per 20 kg, as compared to Rs 526.15 per 20 kg on Monday. The commodity was quoted at Rs 497.95 per 20 kg a month earlier.

There has also been a problem of labour shortage in harvesting the crop for growers, says the industry. Standing crop cannot be left for long in the field. All this is likely to translate into lower sowing in the next season, said a senior official with K S Oils, the largest mustard seed crusher in the country.